Tax advice case: the Netherlands as gateway to Europe for big chemical group as well
The past years have seen a strong increase in the internationalization of trade The advisors of KroeseWevers are regularly involved in tax advice and assistance of international parties that consider the Netherlands literally 'the gateway to Europe’.
What are the challenges in such consultation processes and what are the benefits of calling in tax advisors? We will answer this question on the basis of a business case. It concerns a big international chemical group that imports its goods in Rotterdam to distribute them throughout Europe.
Avoid the use of a tax representative
Early 2018, we were contacted by a chemical group established in South-East Asia. The group had already been active in Europe from a production facility in Germany since 2014. Because of the good financial results, they were looking for a further expansion in Europe.
The first step was the large-scale import and resale of semi-finished products from Asia. Because of its geographical location and excellent infrastructure, they decided on the Netherlands as operating base.
In the import and resale of goods, the group was confronted with VAT-levy and import duties. Advised by their regular logistics partner, they contacted a general tax representative to handle tax liabilities in the Netherlands.
The advantage of this solution was that VAT-registration in the Netherlands was not necessary. A VAT reverse charge mechanism could also be used for the imports to prevent any financing losses.
The main disadvantage of this solution concerned the considerable costs of the general tax representative and the required surety bond to submit the VAT return. Moreover, this was no solution for the long term as there were also plans to start a production location and sales office in the Netherlands.
The challenge for us was to come up with a future-proof solution that prevented the considerable costs and the surety bond of tax representation, while keeping the VAT reverse charge mechanism with imports in place.
Incorporate a private limited company in the Netherlands
To avoid the deployment and related costs of a tax representative, the group had to be registered in the Netherlands as VAT entrepreneur and (possibly with the help of KroeseWevers) autonomously submit VAT returns.
A mere VAT registration posed a new problem, however, as in that case the VAT reverse charge mechanism with imports could no longer be applied. The reverse charge mechanism may only be applied when a tax representative is used, or when the importing party is established in the Netherlands. The non-applicability of the VAT reverse charge mechanism would mean that VAT would be due immediately on importing instead of through the regular VAT return. This would result in a considerable financing disadvantage.
In view of the fact that the VAT reverse charge mechanism with imports was a requirement for an adequate solution, it was eventually proposed to incorporate a private limited company in the Netherlands. Moreover, this solution tied in well with the plans to start a production location and sales office in the Netherlands.
Communication at the right level
In this case, communication in first instance took place with the financial employees of the production location in Germany. The proposed solution was received positively but no follow-steps were taken. The reason for this was the wait-and-see attitude of the parent company in South-East Asia. Together with the people in Germany, it was then decided to connect directly with the organisation in Asia. This way, we were in a position to explain the solution (even) better. Eventually, the executives in Asia were convinced of the solution and we as KroeseWevers assisted in the further implementation.
The Netherlands is the gateway to Europe
This case once again demonstrates that the Netherlands has a lot to offer as country of establishment and as transit country. Of course, the geographical location and the excellent infrastructure play an important role but in the end financial and tax arguments often prove to be decisive. From a political perspective often a very sensitive area, however, in many aspects the Netherlands is the gateway to Europe and that's something we can surely be proud of.
Looking for (tax) advice for international operations?
Looking for advice for international operations? Of course, we are happy to assist you, possibly together with international partners from our Nexia International network of approx 250 independent financial service providers in more than 115 countries. Any questions? Please feel free to contact our expert team international via this contact form.
- Peter van der Sluis MSc
- VAT specialist
- +31 (0)53-8504900
- + 31 (0)6 12868739